For nuclear North Korea this element matters, and it’s not Uranium

North Korea has little the world wants. But it does have iron. Despite the international opprobrium over its nuclear ambitions, North Korea has managed to take advantage of a loophole in United Nations sanctions by increasing its exports of iron ore.

North Korean iron tends to be of higher quality than the ore found in China, according to Sabrin Chowdhury, a commodities analyst with BMI Research in Singapore. (Reuters)

North Korea has little the world wants. But it does have iron. Despite the international opprobrium over its nuclear ambitions, North Korea has managed to take advantage of a loophole in United Nations sanctions by increasing its exports of iron ore. The key buyer, as usual, is China. In global terms, the dollar figure is small: North Korea exported an estimated $74 million of iron ore and concentrates to China during the first five months of 2017. Still, that’s real money for the economically isolated country — which shares a land border with China — and represents a 212 percent increase from the year before, according to data from the Korea International Trade Association.

North Korean iron tends to be of higher quality than the ore found in China, according to Sabrin Chowdhury, a commodities analyst with BMI Research in Singapore. That makes it attractive to some state-owned Chinese steelmakers looking to reduce costs, she said. “There is genuine demand for North Korean iron ore,” said Chowdhury.

North Korea is a minor player compared with suppliers like Australia and Brazil. China imported about 445 million metric tons of iron ore in the first five months of 2017, according to Bloomberg Intelligence, of which just 1.1 million metric tons came from North Korea. Still, Chinese purchases of North Korean iron ore are contributing to tensions between the U.S. and China following President Trump’s statement last week expressing annoyance about China-North Korea economic ties.

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“Trade between China and North Korea grew almost 40% in the first quarter,” Trump tweeted on July 5. “So much for China working with us – but we had to give it a try!” Although Trump’s irritation seems to have cooled after meeting Xi on the sidelines of the Group of 20 summit three days later — he tweeted they’d had an “excellent” meeting on trade and North Korea — his ambassador to the United Nations, Nikki Haley, is pushing for a new round of sanctions that may include further restrictions on Chinese trade with North Korea.

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Two-way trade between China and North Korea rose 10.5 percent to $2.55 billion in the first half of 2017, according to data released by the Chinese government on Thursday. China’s exports to North Korea rose 29 percent from the same period in 2016, General Administration of Customs spokesman Huang Songping said at a briefing in Beijing. Imports from North Korea fell 13 percent.

China has seriously carried out United Nations sanctions on North Korea, said Huang. Chinese exports to the North were mainly consumer goods such as textiles, which aren’t on the list of sanctioned items, the spokesman said.

For the Chinese government, purchases of iron ore provide a way to support the regime of Kim Jong Un now that sanctions more strictly cover North Korean coal. Last year, sales of coal accounted for more than 50 percent of North Korean exports to China and about a fifth of the country’s total trade. However in February China said it would halt purchases until the end of the year, in compliance with Security Council resolutions over the North’s nuclear program.

North Korean iron ore isn’t covered by the same sort of restrictions. The Security Council approved a resolution in November that exempted transactions in iron and iron ore intended “exclusively for livelihood purposes.” The volume of Chinese imports of North Korean iron ore nearly doubled in the first five months of 2017 compared to the same period last year, according to Bloomberg Intelligence.

Since North Korea relies on Chinese imports for many of its basic requirements, maintaining exports of iron ore and other commodities helps to keep the flow of essentials from drying up, said Leonid Petrov, Korean Studies researcher at Australian National University’s College of Asia and the Pacific. “They need grain, they need fuel and they need consumer goods, and that’s what China provides,” he said.

North Korea’s biggest need is to pay for fuel, since the country doesn’t come close to producing enough oil. “North Korea is not self-sufficient,” said Robert Kelly, associate professor of international relations at Pusan National University in the South Korean city of Busan. If China were to cut off supplies, “it would be economically disastrous,” he said.

A spokesman for China’s foreign ministry said the two countries “maintain normal trade relations” and China’s position on de-nuclearization on the Korean Peninsular is “firm and clear.” “According to UN Security Council resolution 2321, iron and iron core imported from DPRK for the purpose of people’s livelihood, and not for the purpose of generating profits for its nuclear program, is not on the sanctions list. The Chinese side will continue to comprehensively, accurately, earnestly and strictly comply with UNSC resolutions,” ministry spokesman Geng Shuang said in a briefing in Beijing, referring to North Korea’s official name, the Democratic People’s Republic of Korea.

In the 1980s and 1990s, North Korea was a major supplier of iron ore to Chinese steelmakers, according to Philip Kirchlechner, director of Iron Ore Research Pty in Perth. Since then, the country has fallen far behind industry leaders. Exports to China have moved within a relatively narrow range, reaching 3 million metric tons in 2013 and falling to 1.6 million tons last year.

“There hasn’t been a dramatic change in volume,” said Kirchlechner. “In terms of economic significance today, it’s been reduced to nothing.”

While a further tightening of UN sanctions could jeopardize that trade, for now the North Koreans stand to benefit as Chinese state-owned enterprises saddled with debts look for inexpensive raw materials. Given their proximity to that market, North Koreans can make money without having to be as efficient as industry leaders, said BMI’s Chowdhury. “Even if their cost is double that of Australia’s,” said Chowdhury, “they’re still making a profit.”